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Mr Finance Minister, Can We Ensure True 'Ease Of Doing Business'?

We hope the new budget brings some reasons to cheer for our Export Oriented Units (EOUs) too which in fact are the original flag bearers of 'Make in India' campaign

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There could not be any denying to the fact that ever since their inception, SEZs and EoUs have played their role pretty well for the cause of Indian economy. Mandated with the task of earning precious foreign exchange for the country, these specially built conclaves while creating world class infrastructure and promoting exports of goods and services have certainly, all along acted as a true engine for economic growth for the country (even once clocking astounding exports growth of 121% in FY2009-10, That's quite a feat in itself! I believe).

With the Budget to be announced very soon, there could not have been a time apt to spell out in clear words what is expected of the Finance Minister for these powerful engines of economic growth to continue their stellar contributions. One of the most important factor that has emerged in recent times is the macro thought of improving the ease of doing business in the country. The new budget needs to be focused on facilitating ease of doing business. India might have jumped a massive 30 places to the 100thplace in the World Bank's ease of doing business rankings this year, but the prevailing state of affairs on the SEZs and EoUs front suggest that the industry’s business friendliness is still a far cry away from what ought to be. 

The general sentiment doing the rounds is that the tax structure for SEZs is no longer attractive and that has taken the sheen off these once ‘go to Pro- investment destinations’ of the country. Look back to the time when SEZs were initiated in 2005-06. These conclaves were then welcomed by industry. But ever since DDT and MAT were introduced, fresh investments started nose diving. These have turned to be the game changers or rather deal breakers. Such a change in policy left investors in the lurch because while making initial business plans, they had not factored in any tax which now ranges from a minimum of 18.5%, in case of MAT. This additional tax burden, which too, on book profit leaves them really in a miserable situation. 

Today business horizon of firms has significantly reduced compared to what it used to be.  Think of the impact that the aftershocks of demonetization and GST have had on thousands of firms spread across country. These led to a change in the whole ‘sector of operation’ for many. To expect no impact on SEZ players of the policy that promises returns only after a long period of ten years, is very strange and unexpected from the policy makers. This calls for an urgent need on the part of the government to revisit policies such as MAT, DDT and the Sunset Clause that have significantly hurt the sector’s growth prospects.

In addition to MAT and DDT related woes, increased cost of GST related irritants is also one area which needs attention. GST - the so called ‘path-breaking tax reform’, the implementation of which promised a supposedly simpler tax mechanism, was supposed to herald an era of ‘One Tax, One Nation, One Market’. But has it really been so?  One look at the overall business scenario suggests, it hasn’t. The fact is, it’s been more than six months ever since the country saw the historic rollout of this biggest tax reform of Independent India, yet its compliance cost and teething related issues continue to bog down businesses including SEZs and EoUs.

The bottom-line is, the current tax regime for SEZs and EoUs cannot be termed as an enabler.  One more thing worth adding here is that, the ordinary businessman of the country is not averse to paying taxes, but it’s the complications that arise thereafter, that frustrate him.  In sum, paying taxes with a smile is certainly different from paying taxes with pain. Thus, my only appeal to the Government is to let [more] money [and cash flow remain] in the hands of the businessmen and let them reinvest or to at least, offer them incentives to further motivate them to reinvest.

Last but not the least, we hope the new budget brings some reasons to cheer for our Export Oriented Units (EOUs) too which in fact are the original flag bearers of ‘Make in India’ campaign. Certainly, there is an immediate requirement of revival of EOUs across the country. These form a segment whose dues, so far, I believe have not been acknowledged appropriately both by the industry and the Government and its time Government accedes to their rightful demands.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Dr Vinay Sharma

The author is the officiating Chairman of Export Promotion Council for EOUs and SEZs and the founder & Managing Director of Oil Field Warehouse & Services Limited – the pioneer of SEZ based material management services in India

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